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NCR: Bank Disruption On The Horizon; Banking M&A Deals To Follow

You’d be forgiven for thinking that, in banking, the deal is dead. The pandemic, after all, has obliterated “normal” business trends and caution reigns.

NCR Digital Banking Senior Vice President and General Manager Doug Brown told Karen Webster there will be an acceleration of deal making on the other side of the pandemic, particularly as financial institutions (FIs) recalibrate and expand their digital efforts.

The conversation came against the backdrop of a muted merger landscape. Through the summer of this year, deal making was down 70 percent from a year earlier to 40 transactions.

The pace picked up again, notably with the deal struck in the fall for BBVA to sell its U.S. operations to PNC Bank, creating the fifth-largest regional player in the U.S.

As Brown told Webster, there’s been no macro slowdown impeding bank-focused strategic buys, at least from NCR’s vantage point. Merger-related activity has been keeping pace at what had been seen in prior years, he said, citing the integration of TCF and Chemical Bank over the summer, for example. In another example, First Horizon Bank has been digesting the SunTrust branches acquired in a deal finalized in July.

Firms with strong balance sheets, he said, have been in a position of strength to capitalize on select opportunities. And amid those select opportunities, he said, as relatively larger banks “hive” off parts of their portfolios, smaller firms can (and will) pick up key assets to strengthen their own balance sheets and service offerings.

Gearing Up For Disruption

No matter the size of the bank or the regional focus, there’s a general realization that disruption is on the horizon.

Big Tech players such as Google make inroads into banking (through the recently announced Google Plex, for example, which integrates checking accounts into the Google app).

But, as Brown contended, linking up with Google and other equivalent players can have tradeoffs, and FIs may in some cases be giving away some of their core competencies — and there always lurk the controversies around how and what data are collected and used.

“What do you get? What is going on in the exchange here? What are you giving up in the relationship — and what are you surrendering in the model?” he asked, adding, “We’re still hard-pressed to see — despite challenger banks, neo banks and these others — how much primary share has shifted.”

But the fear of disruption, perhaps understandably, will light a match to M&A dry powder.

With mergers between traditional FIs, where PNC can leverage BBVA’s digital advances (and mobile banking channels), banking can evolve to meet those disruptive competitors head on.

And evolve it must because no one can make a living on debit interchange alone anymore. The evolution of apps and contextual banking, underpinned by advanced technologies, shows just how vast the digital shift has been and will be.

As Brown said, with a nod toward end consumers, the pandemic may be the ultimate marketing event that forces them to adapt and discover these things. And once consumers are aware of those offerings, they’ll come to expect those financial services and products to be delivered to them by their trusted FI.

That has focused banks’ thinking about how they interact with individuals — and Brown maintained they are fine tuning their digital onboarding and account openings, which have existed as “screaming pain points.” Banks are recalibrating how they use personalization and data, and they’re shifting to the cloud to manage it all.

There’s particular value in serving small- to medium-sized businesses (SMBs) in new and nimble ways, he said, as the Paycheck Protection Program (PPP) has led banks to deepen their relationships in commercial settings. Smaller enterprises, he said, gravitate toward faster FinTech adoption to solve business problems.

Now, he said, banks and credit unions are looking to offer equivalent services, through partnerships and application programming interfaces (APIs), for example. People don’t want to have 10 logins at 10 FinTechs to do invoicing, to track cashflow deposits, so there is room for banks to architect those financial offerings into their own portfolios — even when it comes to serving corporate clients.

“There’s a double extension model here, and that is: The credit unions, security banks have had a good handle on lending to the merchant communities that they serve, especially within their footprint. But what they haven’t been able to do as well includes extending credit to the merchant’s customers, such as point-of-sale lending,” Brown said.

Looking ahead, he predicted, we’ll see renewed combinations, mergers and acquisitions.

“People are revaluating their footprints and rebalancing their retail footprints,” he told Webster. “In some cases, you’ll see some hiving off of the branch environments, and that will continue as other people are looking to scale up the footprints that they’re operating.”

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